April 6 update: Canadian financial regulatory responses to COVID-19

Office of the Superintendent of Financial Institutions (OSFI), Financial Services Regulatory Authority of Ontario (FSRAO), Autorité des marchés financiers (AMF), British Columbia Financial Services Authority (BCFSA), and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) adjust regulations and guidance for banks, credit unions, financial intermediaries and other market participants.

06 April 2020

Canada's financial regulators have advised that they are reviewing and temporarily revising certain regulatory requirements for financial institutions and stakeholders during this time.

Our article on March 19, 2020 set out the key takeaways from the notices published to that date by these federal and provincial/territorial regulators.

Since the publication of that article, there have been significant notices published by federal and select provincial financial services regulators. In this second article, we have compiled the key notices and set out links to the regulators' websites from up to and including April 2, 2020.[1]



The notices have been set out by the following sectors:


BANKS

1. OSFI's Key Measures for Federally Regulated Banks

On March 27, 2020, OSFI announced a series of regulatory adjustments to support the financial and operational resilience of federally regulated banks, publishing a detailed letter to the sector.

  • OSFI has adjusted its capital and liquidity requirements for banks so that they are suited for these unprecedented circumstances.
  • OSFI has delayed the implementation of the remaining measures of the Basel III international capital standard until 2023, which is consistent with the decision of the Basel Committee's oversight body, the Group of Central Bank Governors and Heads of Supervision.
  • OSFI has also delayed the implementation of revised minimum capital and liquidity requirements for small and medium sized banks until 2023.
  • Bank loans that are subject to payment deferrals will not be considered past due for the duration of the payment deferral, up to a maximum of six months. These loans will continue to be treated as performing loans.
    • These loans can include: (i) mortgage loans, (ii) small business loans, (iii) mid-market commercial loans, and (iv) retail loans (including credit cards).
    • OSFI has advised that banks granting payment deferrals will be subject to additional reporting requirements in respect of these loans. Additional details will be communicated by OSFI in the coming weeks.
  • OSFI has provided guidance on how it is applying IFRS 9 as it relates to expected credit losses due to the exceptional circumstances arising from COVID-19.
    • OSFI has taken the view that, using a payment deferral program should not result in an automatic trigger (all things being equal) for significant increase in credit risk.
    • To determine economic impacts of COVID-19, OSFI encourages banks to consider (i) the exceptional circumstances, (ii) significant government support, (iii) the high degree of uncertainty, and (iv) established long-term economic trends evidenced by past experience.
    • OSFI expects banks to provide sufficient and timely disclosures to allow OSFI to understand how the assumptions and judgements made by banks address the COVID-19 outbreak.
    • Banks should also consider any additional guidance provided by the International Accounting Standards Board on the application of IFRS 9 in relation to COVID-19.

2. OSFI's Guidance on Capital Treatment for Exposures from Government Programs

On March 30, 2020 OSFI issued direction on how banks should treat new capital made available to small and medium sized enterprises through recently announced federal government programs. Lenders participating in loans and guarantees offered through these temporary measures remain responsible for their underwriting practices.

Capital Treatment for Canada Emergency Business Account

  • The Government of Canada launched the Canada Emergency Business Account to help small businesses gain access to the capital they need under current circumstances.
  • Banks that acquire exposures as a part of the Canada Emergency Business Account program can exclude these from the risk-based capital and leverage ratios.

Capital Treatment for Export Development Canada (EDC) Guarantee

  • EDC will guarantee new operating credit and cash flow term loans that financial institutions extend to small and medium-sized enterprises.
  • Banks taking on these loans should treat the portion of the loan backed by the Government as a sovereign exposure, with the remaining portion treated as a loan to the borrower. The entire amount of the loan would be included in its leverage ratio calculation.

Capital Treatment for Business Development Bank of Canada (BDC) Co-lending Program

  • The Government of Canada announced co-lending program for small and medium-sized enterprises, which will bring the BDC together with financial institutions to co-lend term loans to such enterprises for their operational cash flow requirements.
  • Banks taking on these loans must account for the portion of the loan that they hold in their risk-based capital and leverage ratios.

CREDIT UNIONS

1. FSRAO's Notice to Ontario Credit Unions

On March 27, 2020, FSRAO published a notice to credit unions advising that it will provide various regulatory easing measures for Ontario credit unions. Please see FSRA Support to Credit Unions and Caisses Populaires for more details.

Deferral of Certain Fees, Premiums, and Examinations

  • Invoices for Deposit Insurance Reserve Fund premiums payable under the Credit Unions and Caisses Populaires Act, 1994, and for fees payable under FSRAO's Fee Rule 2019-01are withdrawn.
    • Until new invoices are issued, FSRAO is deferring collection of these premiums. FSRAO will provide 15 days' notice prior to new invoices being issued.
  • FSRAO is deferring non-critical components of credit union examinations.
  • FSRAO supports credit unions providing loan payment deferrals and confirms that prudent and appropriately documented deferrals as a result of COVID-19 to borrowers otherwise in good standing, do not result in impairment under By-law No. 6 – Reserves and Monthly Provisions for Doubtful Loans; and
  • FSRAO is also postponing new consultations on draft guidance.
  • FSRAO is waiving the Q1 2020 Level II and Level II reporting requirements. Flexibility on deadlines for other report filings may be provided on a case-by-case basis. Credit unions are encouraged to contact their Relationship Manager if they require flexibility in other reporting deadlines or if they anticipate non-compliance with liquidity guidance.

2. BCFSA Notices to British Columbia Credit Unions

On March 23, 2020 BCFSA published a notice announcing three easing measures intended to support British Columbia's credit unions. On April 1, 2020, BCFSA provided guidance for these credit unions on reporting for loans with payment deferring arrangements.

Regulatory Easing Measures for all Credit Unions Incorporated or Continued in British Columbia

  • Internal Capital Targets : If a credit union provides prior written communication to its Relationship Manager, that credit union may operate with a capital position below its Internal Capital Target, provided that its capital ratio remains above the 10% supervisory target.
  • Commercial Lending Thresholds : BCFSA will apply regulatory discretion and permit credit unions to exceed the current threshold for commercial loans (30% of assets). A 100% risk-weight will apply to commercial loans up to 40% of assets, and a 200% risk-weight will apply to loans over 40%. BCFSA emphasized that this forbearance is temporary and discretionary.
  • Central 1 Credit Union Leverage : Central 1 Credit Union is permitted to increase its leverage ratio from 15:1 to 18:1 for non-mandatory liquidity deposits.
  • The BCFSA has also extended the filing deadlines for certain filings required to be made by credit unions. The full list of extended filings can be found here.

Guidance on Reporting for Loans with Payment Deferral Arrangements

  • Credit unions submitting Financial and Statistical Returns can exclude loans with payment deferral arrangements due to hardship from COVID-19 from the Loans and Leases in Arrears section of the return, provided that these loans are in compliance with the revised arrangements. These loans may also be reported as current in the Capital Adequacy Return.

INSURANCE

1. OSFI's Key Measures for Federally Regulated Insurers

On March 27, 2020, OSFI announced a series of regulatory adjustments to support the financial and operational resilience of federally regulated insurers, publishing a detailed letter to the sector.

  • OSFI has advised that, provided there is no claim outstanding on a mortgage loan, payment deferrals will not cause insured mortgages to be treated as delinquent or in arrears, if (i) a bank has approved a deferral of mortgage payments, and (ii) the borrower respects the payment deferral terms and conditions.
    • This capital treatment will apply for the lesser of six months or the duration of the payment deferral.
    • OSFI may require additional reporting in respect of these loans.
  • OSFI has decided to suspend, until further notice, semi-annual progress reporting on the implementation of new accounting standards, notably, IFRS 17.
  • OSFI has also suspended various consultations and policy development initiatives on new or revised guidance until conditions stabilize. For the full list, please refer to OSFI's letter to the insurance sector.

2. FSRAO's Notice to the Insurance Sector

On March 27, 2020, FSRAO published a notice announcing extensions to deadlines and deferrals of fees for insurance agents and insurance brokers licensed in Ontario.

Licenses Renewals for Insurance Agents are Extended for 60 Days; Fees for Insurance Brokers are Withdrawn

  • The invoices already issued to insurance brokers for F2020-21 fees are withdrawn.
    • Until new invoices are issued, FSRAO is deferring collection of these fees. FSRAO will provide 15 days' notice prior to new invoices being issued.
  • Deadlines for renewal of insurance agent licenses will be extended for 60 days.

3. AMF's Key Measures for Quebec Chartered Insurers

On March 31, 2020, the AMF announced a series of regulatory adjustments designed to minimize the impacts of COVID-19 on the financial system in Quebec, along with a detailed notice for Quebec chartered insurers.

Suspension of Reporting Obligations and Consultations

  • Similar to OSFI, the AMF suspended, until further notice, semi-annual progress reporting relating to IFRS 17, as well as, the consultation on capital adequacy guidelines in insurance of persons.
  • New timelines were also announced relating to certain reporting by damage insurers.

PENSIONS

1. OSFI's Key Measures for Federally Regulated Private Pension Plans

On March 27, 2020, OSFI announced a series of regulatory adjustments to support the financial and operational resilience of federally regulated private pension plans, publishing a detailed letter to the sector.

  • OSFI has temporarily frozen portability transfers and annuity purchases to protect the benefits of plan members and beneficiaries.
    • To do so, OSFI has revised the Directives of the Superintendent pursuant to the Pension Benefits Standards Act, 1985 effective March 27, 2020.
    • The payment of pensions to retirees and other beneficiaries is not impacted by the freeze on portability transfers and annuity purchases.
    • During the temporary freeze period, administrators may request the Superintendent's consent to a transfer or annuity purchase based on plan-specific or special circumstances.
  • Extending deadlines for certain actions and annual filings to allow plans more flexibility to focus on issues at hand. See OSFI's letter to the pension sector for more details.

2. FSRAO's Notice to the Pensions Sector

On March 20, 2020 FSRAO published a notice for the pensions sector, which contains its responses to various questions that may be top of mind for pension plan administrators during this time.

Plan Administrators May Get Extensions for Upcoming Regulatory Filings

  • Plan administrators or their authorized agents who are registered on FSRAO's Pension Services Portal (PSP) may submit filing extension requests of up to 60 days via the PSP.
    • If the filing extension request is for a period beyond 60 days, FSRAO has asked plan administrators to submit the request by email (preferably) or by regular mail to their assigned Pension Officer.
    • Section 105 of the Pension Benefits Act (PBA) allows pension plan administrators and their authorized agents to request a filing extension of up to 60 days beyond the prescribed timeline under the PBA.

Plan Administrators or Agents that Cannot Comply with Member Disclosure Timelines will not face Summary Penalties if they let their Assigned Pension Officer Know Beforehand

  • FSRAO recognizes that current circumstances may cause delays in the production of member disclosure information within the prescribed timelines of the PBA.
  • If a plan administrator or their agents are facing challenges in complying with the prescribed timelines, FSRAO has asked that they let their assigned Pension Officer know via email as soon as possible.
    • Effective March 20, 2020, provided a plan administrator has advised FSRAO of both (i) the challenges it is experiencing and (ii) its proposed plan of action, summary administrative monetary penalties will not be levied for non-compliance until further notice.
    • FSRAO does not have discretionary powers to extend the prescribed timelines as they relate to member disclosures.

FSRAO Will Work to Restore Pension Payments for Retirees

  • If a retiree under a pension plan that is supervised by FSRAO stops receiving pension payments, FSRAO has asked that person to contact their plan administrator to inform them of the situation.
    • If the situation persists, FSRAO has asked the person to email them through its website, https://www.fsrao.ca/contact-us, and FSRAO will work to restore the pension.

All Pending Transactions Filed with FSRAO will Be Reviewed But Expect Delays

  • FSRAO has advised that all pending transactions filed with FSRAO – such as pension asset transfers or wind-up applications – will continue to be reviewed by FSRAO.
    • FSRAO notes, however, that it expects there will be some delay due to the current disruptions.

FSRAO's Prior Approval Required Where the Transfer Ratio of a Defined Benefit Pension Plan has Deteriorated by 10% or More

  • In the following circumstance, an administrator of a defined benefit pension plan registered in Ontario must not transfer any part of the commuted value of a pension, deferred pension or ancillary benefit to which a member or former member is entitled without obtaining FSRAO's prior approval:
    • If the plan administrator knows or ought to know that the transfer ratio has fallen by 10% or more since the most recently determined transfer ratio, or if the most recently determined transfer ratio was above 1 and it has fallen to 0.9 or less.
  • Plan administrators should use Form 10 to seek FSRAO's approval, and where possible, should submit the form electronically to their assigned Pension Officer.

3. BCFSA's Notice to the Pension Sector

On March 30, 2020, the BCFSA published a notice advising of a number of extensions to required filings for pension plans registered in British Columbia.

Extensions to Required Filings for British Columbia Pension Plans

  • Annual Statements: For all pension plans required to provide members with annual statements between March 30, 2020 and December 29, 2020, the deadline for providing such statements is extended by 60 days.
  • Termination Active Membership Statements: The deadline to prepare active termination of membership statements for collectively bargained multi-employer plans with a March 30, 2020 deadline is extended by 30 days.
  • Annual Information Return and Financial Statements: For all pension plans required to make these filings between March 30, 2020 and December 29, 2020, the deadline is extended for 60 days.
  • Actuarial Valuation Report and Actual Information Summary: For all pension plans required to file an actuarial valuation report in 2020, the due date is extended by 90 days.

MORTGAGES

1. FSRAO's Notices to the Mortgage Sector

On March 23 and 26, 2020 FSRAO published notices extending deadlines, (i) for mortgage brokerages and administrators to file their 2019 annual information returns (AIRs), and (ii) for mortgage brokers and agents to renew their licenses.

On April 2, 2020, FSRAO advised that invoices already issued to mortgage administrators for F2020-21 fees are withdrawn.

Deadline for Mortgage Brokerages and Administrators to File 2019 AIRs is June 30, 2020

  • FSRAO has extended the deadline for mortgage brokerages and administrators to file their 2019 AIR by three months, from March 30, 2020 to June 30, 2020.
    • The AIR is an annual questionnaire that FSRAO uses to collect information from mortgage brokerages and administrators that it licenses. It must be filed electronically through Licensing Link and may only be completed by the principal broker of a mortgage brokerage, and/or the principal representative of a mortgage administrator.

Deadline for Mortgage Brokers and Agents to Renew Licenses is May 31, 2020 if Initiated by March 31, 2020

  • FSRAO has advised that the deadline for completing renewal applications will be extended from March 31, 2020, to May 31, 2020, provided that renewal applications have been initiated by March 31, 2020.

Invoices Already Issued to Mortgage Administrators for F2020-21 Fees are Withdrawn

  • Until new invoices are issued, FSRAO is deferring collection of these fees. FSRAO will provide 15 days' notice prior to new invoices being issued.

HEALTH SERVICE PROVIDERS

1. FSRAO's Notice to Health Service Providers

On March 24, 2020, FSRAO published a notice extending the deadline for health service providers to file their 2019 AIRs.

Deadline for Health Service Providers to File 2019 AIRs is June 30, 2020

  • FSRAO has extended the deadline for health service providers to file their 2019 Annual Information Return (AIR) and regulatory fee by three months to June 30, 2020.
    • This includes those who did not conduct any business in 2019 but still held a service provider license at December 31, 2019.
    • The AIR is an annual questionnaire that FSRAO uses to collect information from the service providers that it licenses. It must be filed electronically, and may only be completed by the Principal Representative.
  • The delayed filings of the AIR and payment of fees will not affect the good standing of a license throughout the extension.

QUEBEC FINANCIAL COOPERATIVES, TRUST COMPANIES, AND SAVINGS COMPANIES

On March 31, 2020, the AMF announced a series of regulatory adjustments designed to minimize the impacts of COVID-19 on the financial system in Quebec, publishing a detailed notice for Financial services cooperatives, trust companies and savings companies.

1. AMF's Key Measures for these Financial Institutions

Regulatory Capital and Liquidity Adjustments

  • Loans that are subject to payment deferrals will not be considered past due for the duration of the payment deferral, up to a maximum of six months.
  • The AMF adjusted its capital and liquidity requirements related to credit losses so that they are suited for the current circumstances.
  • Similar to what was announced by OSFI on March 30, the AMF provides guidance on the capital treatment for the Canada Emergency Business Account, the Export Development Canada Guarantee and the BDC Co-lending Program (please refer to comments above relating to the measures taken by Banks).

Exemptive Relief

  • The notice mentions financial institutions that wish to use liquidity targets that differ from their internal policies or AMF guidance can make a request for authorisation to the AMF. Likewise, a financial institution that requires additional to file regulatory information can request authorization from the AMF.

Basel III Consultations

  • The AMF will delay the implementation of the remaining measures of the Basel III international capital standard until 2023.

Expected Credit Losses and IFRS 9

  • Similar to OSFI, the AMF has provided guidance on how it is applying IFRS 9 as it relates to expected credit losses due to the exceptional circumstances arising from COVID-19 and discusses significant increases in credit risk, prospective determination of economic impacts and sufficient and timely disclosures of information (please refer to comments above relating to the measures taken by Banks).

Other Measures

  • Supervision by the AMF and delays for the filing of certain viability plans will be adapted to the reality of the COVID-19 crisis.
  • Temporary increase of the limit for the issuance of secured debt to 10% from 5.5%.
  • Temporary decrease of the value at risk factor from 3 to 1 and financial institutions will receive particular correspondence from the AMF to such effect.

QUEBEC DEPOSIT INSTITUTIONS

On March 31, 2020, the AMF announced a series of regulatory adjustments designed to minimize the impacts of COVID-19 on the financial system in Quebec, publishing a detailed notice for Deposit institutions authorized pursuant to the Deposit Institutions and Deposit Protection Act.

1. Key Measures under the Deposit Institutions and Deposit Protection Act

  • Quebec deposit institutions are granted an extension until December 15, 2020 to pay the portion of the deposit insurance premiums that is due on July 15, 2020.
  • Relief, on a case by case basis, for the reporting of guaranteed deposits that is due on July 15, 2020.
  • Other relief for new disclosure requirements under the regulation and extensions for compliance tests and for new requirements relating to data.

FINTRAC REPORTING ENTITIES

On March 25, 2020 FINTRAC published an update to its a message to its reporting entities subject to obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated regulations, regarding their obligations in light of COVID-19.

1. FINTRAC Expects Reporting Obligations to be Met – or Document Why They are Not

  • FINTRAC has advised that it expects reporting entities will do everything possible to meet all of their obligations, including in relation to reporting.
  • However, should a reporting entity be unable to meet some of their obligations, FINTRAC has asked for it to document the reasons why and keep a record of it.
    • FINTRAC will take a "reasonable approach" with such compliance activities.

2. Prioritize Suspicious Transaction Reports (STRs)

  • FINTRAC has asked that its reporting entities prioritize submitting STRs.
  • In situations where critical information related to national security matters cannot be provided to FINTRAC in a timely manner, FINTRAC has asked that the reporting entity in possession of the information send an email to emergencyreport-declarationurgente@fintrac-canafe.gc.ca, and someone will contact the entity. A written report by the entity should follow as soon as possible.
  • In other instances where a reporting entity is prevented from reporting or will be reporting late for reasons beyond its control, the entity can submit a voluntary self-declaration of non-compliance to VSDONC.ADVNC@fintrac-canafe.gc.ca, when it has the opportunity to do so. This information will be taken into account in future compliance activities.

3. Verification of Identity Determinations

  • FINTRAC recognizes that provincial governments may extend the validity of various government driver, vehicle and carrier products and services that have expired on or after March 1, 2020, to avoid in-person visits to renewal facilities.
    • If a person presents a document or information affected by such a decision, a reporting entity must continue to determine the authenticity of a government-issued photo ID document, but can until further notice, consider the document or information as valid and current pursuant to its issuing authority (the applicable provincial government).
    • Alternatively, the reporting entity may use another method to verify the identity of the person.

4. Compliance Assessment and Enforcement

  • FINTRAC has advised that it has reprioritized its supervisory work in the current circumstances. Namely, for the time being:
    • FINTRAC will not be contacting reporting entities to initiate new examinations.
    • FINTRAC's other interactions with reporting entities will be limited to: (i) situations related to reporting issues, (ii) circumstances where reporting entities contact FINTRAC for guidance, and (iii) the completion of examinations currently underway.
  • In cases where COVID-19 impacts a reporting entity's ability to meet an obligation, the entity should keep a record indicating why this is the case (for example, a memo outlining reduced staffing levels) and, where possible, include any measures being taken to mitigate the risk of non-compliance.
    • FINTRAC will consider this when assessing a reporting entity's compliance with its obligations and in taking any subsequent compliance actions, once these activities resume.

Conclusion

If you have any questions as to how these regulatory changes may impact your organization's obligations, please contact your Gowling WLG professional. Our Financial Services Regulatory Team at Gowling WLG will continue to keep you informed as further developments arise.

For other COVID-19 related resources, please visit our resource page with information to help clients manage their business during the pandemic. The page contains critical information to guide you through various complex legal issues, as well as a list of key contacts who can provide advice on these issues.


[1] Please note that while this article outlines some of the key takeaways from the notices published by the listed regulators up until April 2, 2020, it is not an exhaustive list or analysis. Please refer to the full notices on the regulators' websites for a complete list of the revisions.


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